It was by improvising that Daniel Kahneman came up with a game-changing idea for the Israeli army in 1954, an idea that went on to become the stuff of legends and laid the framework for decision-making across professions.
Kahneman was a 20-year old recruit when he formulated a proposal for improving the hiring process of the Israeli army.
The Nobel laureate who laid the foundation of behavioural economics told this to Moneycontrol in an interview in 2023. Kaheman died on March 27, 2024. He was 90.
Read the full interview here: Daniel Kahneman on why optimism is as bad as pessimism, when to call it quits and other insights into decision-making
Origin of the idea
Recalling how the idea came to him, Kahneman said he had gone to serve for one year in the Israeli army after he had graduated as a psychologist.
As he put it in the interview, he had just his "inferior BA." Yet, he was "about the best trained psychologist in the Israeli Army."
Therefore, when they assigned him the task of setting up an interview system for the army, he thought he could do it, which he later conceded was "completely unreasonable."
But back then, a younger Kahneman took a book that was given to him and went to work reimagining the hiring process and improving its random manner of assessing the capabilities of candidates.
After he came up with a protocol, he told the army's interviewers not to worry about the validity of what he came up with, but to just follow its rules.
He had defined six traits and a few questions that went along with each. As Kahneman said, "It wasn't a completely structured interview, but it was quite structured."
He said, "They interviewed for each trait, like sociability, responsibility, eyc. Those are very straightforward concepts. Then they would try to ask objective questions about the daily life of the individual."
He then instructed the interviewers to rate each trait of the candidate and think about it independently, without taking into consideration what else the candidate had said.
His plan was to have just those six ratings and to average them, but the interviewers rebelled. Kahneman then compromised. His compromise was that the interview would be conducted as he had devised, but finally the interviewers would close their eyes and consider how good a soldier a person could be.
"That's a completely intuitive rating," Kahneman had said.
"What is special about it is that the rating is done at the end of the process. That is, you have accumulated all the information and then you let your intuition go free," he had explained.
Complete surprise
His team subsequently did a study to validate their assessments against how well the soldiers were doing in the army. It turned out that the process was quite sound and certainly much better than the unstructured interview system that had been used before.
Also read: Regret makes you a bad investor and prone to the worst mistake, says Daniel Kahneman
But what completely surprised Kahneman was that the intuitive rating at the end of the interview was just as valid as the average of six ratings.
Sixty-five years later, he, legal expert Cass R Sunstein, and writer and consultant specialising in strategic decision making Olivier Sibony wrote Noise, a landmark book on on how to think about decision-making and to treat options, like candidates being interviewed.
Kahneman told Moneycontrol, "It is going back to the ideas of those interviews, and trying to generalise how a decision-maker should think about options."
Kahneman's method helps avoid the "halo effect" and achieve more independent judgement. The Halo effect is when one good attribute of a person or thing leads an evaluator to believe that there are other good attributes in the candidate. For example, if a candidate is pleasing in appearance, the evaluator may also attach intelligence to the candidate, without evidence.
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